1. Comparative Advantage and International Trade

2. Comparative Advantage and International Trade
Sources of Comparative Advantage
Differences in Climate
A key reason the opportunity cost of producing a Valentine’s Day rose in Colombia is less than in the United States is that nurseries in Colombia can grow roses outdoors all year round.
In general, differences in climate are a significant source of international trade.

3. Comparative Advantage and International Trade
Sources of Comparative Advantage
Differences in Factor Endowments
The factor intensity of production of a good is a measure of which factor is used in relatively greater quantities than other factors in production.
According to the Heckscher–Ohlin model, a country has a comparative advantage in a good whose production is intensive in the factors that are abundantly available in that country.

4. Comparative Advantage and International Trade
Sources of Comparative Advantage
Differences in Technology
At any given point in time, differences in technology are a major source of comparative advantage.

5. Supply, Demand, and International Trade
The Effects of Imports
The domestic demand curve shows how the quantity of a good demanded by domestic consumers depends on the price of that good.
The domestic supply curve shows how the quantity of a good supplied by domestic producers depends on the price of that good.
Autarky is a situation in which a country cannot trade with other countries.

6. Supply, Demand, and International Trade
The Effects of Imports: Surplus Prior to Imports

7. Supply, Demand, and International Trade
The Effects of Imports
The world price of a good is the price at which that good can be bought or sold abroad.

8. Supply, Demand, and International Trade
The Effects of Imports: The Domestic Market with Imports

9. Supply, Demand, and International Trade
The Effects of Imports: Changes on Surplus

10. Supply, Demand, and International Trade
The Effects of Exports: The Domestic Market with Exports

11. Supply, Demand, and International Trade
The Effects of Exports
Slide 11
Slide 11

12. Supply, Demand, and International Trade
International Trade and Factor Markets
Exporting industries produce goods and services that are sold abroad.
Import-competing industries produce goods and services that are also imported.

13. The Effects of Trade Protection
The Effects of a Tariff
An economy has free trade when the government does not attempt either to reduce or to increase the levels of exports and imports that occur naturally as a result of supply and demand.
Policies that limit imports are known as trade protection or simply as protection.
A tariff is a tax levied on imports.

14. The Effects of Trade Protection
The Effects of a Tariff

15. The Effects of Trade Protection
The Effects of a Tariff: Reduction of Total Surplus
Deadweight loss due to lost sales
Deadweight loss due to inefficient domestic production
Government revenue due to tariff

16. The Effects of Trade Protection
The Effects of an Import Quota
An import quota is a legal limit on the quantity of a good that can be imported.

17. The Political Economy of Trade Protection
Arguments for Trade Protection
Advocates of tariffs and import quotas offer a variety of arguments. Three common
arguments are national security, job creation, and the infant industry argument.
The Politics of Trade Protection
Trade protection reflects the political influence of import-competing producers.

18. economics in action
Declining Tariffs